VEPR Report I - 2019 EN

VIET NAM QUARTERLY
MACROECONOMIC REPORT
Quarter 1 - 2019

Supported by:
Konrad Adenauer Stiftung

SUMMARY
§ The global economy is expected to undergo instability in 2019. Many international

organizations have continuously lowered their forecasts with the latest estimation of around
3.5% for economic growth. In addition, oil prices are moving upwards but unpredictably
owning to disagreements from US and OPEC.
§ There are increasing concerns about China's economy as its industrial production growth
and private investment are expected to decline. Besides. China's PMI have been remaining
under 50 for the consecutive of three months. Along with that, the People’s Bank of China
has loosened monetary policy in order to support the economic growth.
§ Additionally, US and Europe have stopped the normalization of monetary policy due to the
worries of its growth-declining impacts. At that time, Japanese governments have improved
working conditions to attract a higher volume of foreign workers so as to cover labor
shortages recently.
§ In the first quarter of 2019, Viet Nam's economy grew at 6.79% (yoy), which is 0.66% lower
than that figure in 2018. The growth in the agriculture, forestry, fishery and service sectors
remained at acceptable levels despite of being much lower than that in 2018. The FDI sector
played crucial role in economic growth by contributing 41.46 billion USD the total export
value.
§ Regarding of business activities, while the number of newly established enterprises and new
jobs did not differ much from these figures of Q4/2018, the number of temporarily ceased
enterprises in January was unusually high, around 23,082 firms, which is the highest number
during the last 10 years.
§ Inflation in Q1/2019 increased to 2.63% due to the surging in energy prices. In the presence
of growing international commodity prices and maximum domestic environmental
protection taxes applied since 1st January 2019, the State Bank of Vietnam (SBV) needs to
keep an eye on inflation pressure in doing monetary policies in the coming time
§ Capital liquidity before Tet holiday was limited owning to high payment demands. Thus,
interest rates increased significantly before Tet and then declined but still stayed in a higher
level than that in Q1/2018. Until 20th March, capital flows in all means of payment grew to
2.54% (yoy) and growth in credit market reached 1.9% (yoy).
§ The US-China trade war is bringing about opportunities for Viet Nam's economy. Referring
to long-term impact, once the production supply chain shifts from China to neighbouring
countries, Viet Nam has to simultaneously improve the legal framework, business
environment and labour quality to grasp these opportunities. In order to adapt with the new
context, Viet Nam will face up to challenges when the country’s infrastructure has yet been
ready to absorb this production shifting, while lacking of economies of scale as the case of
China and India.

2019 VIET NAM MACROECONOMIC REPORT Q1 1

THE WORLD ECONOMY

Commodity Prices
Commodity and asset markets
Commodity market in Q1/2019 witnessed

considerable instability in energy prices,
while food prices slightly declined in
comparison with Q4/2018. After the three
consecutive months of decreasing in price
in Q4/2018 from 70.8 USD/barrel to 49
USD/barrel, WTI crude oil price in Q1/2019
rebounded to 55 USD/barrel in February
and then increased to 60 USD/barrel at the
end of March.
Since January 2019 until now, oil prices
recovered and reached to the peak at the Source: The Pink Sheet (WB)
end of Q1 thanks to OPEC’s efforts to cut at a record of 12.1 million barrels a day,
output and the hope of US-China trade deal. which is an increase of more than 2 million
According to the latest agreement, OPEC barrels a day since the beginning of 2019.
will be contining to cut production until this The inventories of US oil was also high at
June. However, the global oil supply are still 452.93 million barrels in Q4/2018. These
remained stable due to the increase in US factors let US overpass Saudi Arabia to
oil production and inventories. According become the world's largest oil exporter in
to the US Energy Information the last year.
Administration (EIA), US oil production was
Gold Price and USD Index

Source: FRED, www.gold.org
2 2019 VIET NAM MACROECONOMIC REPORT Q1
As for other energy commodities, meeting on 20th March, US Federal Reserve

Australian coal price in Q4 was in the (Fed) promised not to raise interest rates in
downward trends from 98.6 USD/ton to 2019, over the line of 2.5% after 4 times of
93.1 USD/ton in March. raising interest rates in 2018 and stopped
Thai rice prices recovered in January but the Quantitative Tightening program (QT)
fell slightly in the next two months, and aiming to strengthen US dollar in the last
stayed at 406 USD/ton in March. September. Fed forecasted US economic
Meanwhile, the price of Vietnamese rice fell growth of 2.1% in 2019 and 1.9% in 2020.
sharply to 342 USD/ton due to the Thus, investors are more cautious in their
abundant supplies during the biggest rice investment portfolios because of worries in
harvesting season. the economic depression.
In the asset market, the value of the dollar Gold prices continued to fluctuate
has fluctuated considerably in the first unpredictably but are on the rise in the last
quarter owning to the series of factors, but days of the first quarter and currently
recently experienced a cool down in at 1295.4 USD/oz. Gold price depended
comparison with Q4/2018. Currently, the significantly on the strength of the dollar.
value has declined significantly a few times. Thus, when the dollar weakens, gold
Particularly, the nominal USD index in the becomes a preferred asset of investors,
quarter hit the bottom of 125.87 on 31st especially when the world economy has
January 2019 and quickly rebounded to the confronted with many uncertainties at
highest level of 127.93 on 7th March. At the present.
US Economy confronted a variety of

challenges
The third estimate by the US Bureau of US Economic Growth (%)

Economic Analysis (BEA) showed that the
growth rate of this country in Q4/2018 was
2.6% (qoq) and 3.1% (yoy), the highest
levels in the last two years. The growth was
thanks to the tax cut package of 1.5 trillion
USD and the government spending
expansion program. The economy's 2018
growth rate of 2.9% is slightly lower than
Donald Trump's target of 3%. The trade
war and the instability of the world
economy have put pressure on investors as
Source: BEA, OECD

well as their businesses in this country, but figures in the same period last year.
this situation is projected to last only until However, by March these indicators had a
the end of 2019. slight decrease. The unemployment rate
In the last months, Fed decided not to raise (seasonal adjustment) rose again at 4% in
interest rates due to concerns about the January but at the same time the number of
downtrends of the economic growth and new jobs increased sharply to 311 thousand
doubts of weakening US strength. Fed vacancies in December. By February, these
officially ended the normalization of two rates in turn decreased to 3.8% and
monetary policy although they have not yet 20,000 posts. In 2018, the US trade deficit
reached targets. However, US inflation was peaked in the last 10 years, at 621 billion
still lower than the levels of 2% as they USD, which is a 68.8 billion USD increase
expected. Additionally, core and total (equivalent to 12.5%) compared to 2017.
inflation dropped to 2.08% and 1.52% The main reason laid in a trade tension with
China, as well as the Fed's four times
respectively in February. Regarding to
economic sectors, the service sector interest rate increase making the dollar
underwent the growth in the first two appreciate. However, in January 2019, the
months of 2019. Particularly, NMI in trade deficit decreased by 15% in
February reached 59.7 points. The comparison with figures in December 2018,
component indicators also showed the at only 51.1 billion USD due to a decline in
growth in the non-manufacturing sector goods and services imports and a slight
during February. Specifically, the two increase in exports. At the same time, the
components, which are business operations US trade deficit compared to China fell by
and new orders, reached 64.7 and 65.2 5.1 billion USD.
points respectively, higher than those
Inflation and unemployment rate (%, US non-manufacturing Index

yoy)

Source: BLS Source: ISM
In Q1/2019, President Donald Trump

Economic Growth in Selected Advanced
announced a temporary suspension of Countries (%, yoy)
trade with China and showed his attempts
towards a trade agreement.
EU Economy faced difficulties
The European economy continuously

weakened in Q3 and Q4/2018. EU28 grew
at a low rate of 1.61% and 1.13% (yoy)
respectively, while EA19 area reached
Source: OECD
1,83% and 1.44% (yoy), which are the
lowest growth rates in the last three years. total inflation in the first quarter decreased
Brexit itself has pressed the economic slightly at 1.5% in January and 1.6% in
growth in this region to decrease. February. Core inflation increased slightly

by 1.3% and 1.2% respectively.
Currently, the basic interest rates of
European Central Bank (ECB) are very low, Compared to USD, Euro remained its value
at 0.25% for lending rates and -0.4% for stably during the quarter, but increased
deposit. These figures were controlled at significantly compared to Q4/2018. At the
limited levels to secure the continuous present, the exchange rate is 1.1605
increase of inflation until it reaches to the EUR/GBP, growing by 4.5% compared to

target of 2%. According to the latest the beginning of the quarter. Meanwhile,
announcement, the ECB planed to keep the
interest rate at least until the end of this
Unemployment and Inflation in EU28 (%)
year. This is an unexpected change for
investors because at the end of last year
ECB announced to raise the interest rate.
At the same time, ECB launched refinancing
program with 2-year loans in order to stop
credit tightening policies in banks, which
could make the economic growth of this
region worse (only 1.1% in 2019’s
projection).
The employment rate was improved in

Q1/2019 and hit the bottom of 6.5%, the
lowest levels during the last 12 years. The Source: OECD

currently, the USD/GBP exchange rate is EUR/GBP and USD/GBP exchange rates
USD 1.303/GBP, up nearly 3.4% (yoy).
UK is facing many uncertainties.

Particularly, the country's fourth-quarter
growth rate was only 1.33%. Brexit has lead
investment reduction in Q4/2018 around
by 3.7% compared to Q1/2018, which was
the strongest decline since 2010 so far.
According to the Bank of England (BoE),
investment rates from businesses are
expected to decline this year. Not only the

automobile industry is struggling,
Source: BoE
many businesses temporarily shut down
agreement because they are not sure that
immediately after Brexit to avoid
parts for production would be fully
the risk of interruptions. Particularly, BMW
supplied. That is a big concern which
announced that they would close their
factories if the UK exits the EU without any happened not only in BMW

Japanese economy immersed in the
shortages of labour
Japan’s Inflation and Employment
Data from the OECD shows that
Japan's economy in Q4/2018 experienced a s
higher growth rate compared to Q3/2018,
although it still stayed at low levels of 0.3%
(yoy). The US-China trade war has heavily
affected the economy. The forecast of
Japan's economic growth in 2019 is only
1.3%.
Growth of industrial production and retail

index increased slightly in the first two
months, to 102.5 and 102.7 in February.
On the labor market, the number of jobs Source: Statistics Bureau of Japan
went up slightly by 280 thousand jobs in
at 1.63%. This reflects the variety of
Q1/2019. The unemployment rate
vacancies in the labor market, but also the
remained at 2.3% - 2.4%. The ratio of total
shortage of labor supply currently
job vacancies to total candidates remained
happening in Japan. To solve this problem,
on 25th December 2018, Japanese Meanwhile, inflation is moving downwards

governments adopted 126 proposed in the first quarter of the year. Total
solutions, including promoting the inflation fell sharply from 1.4% to 0.2%
integration of foreigners, supporting since December last year. Core inflation
foreigners living in Japan and a new visa increased from 0.1% at the end of Q4/2018
system at a cost of up to 13.6 billion Yen for to 0.3% in February. It seems that the
2019 to attract external workers into their quantitative easing program of the Bank of
industries with the lacks of human Japan (BOJ) does not seem to achieve the
resource. desired effect and gradually lost its impacts.
The target of 2% inflation rate is too far
away.
Japan’s Retail Sales and Industrial Total Wage and Jobs-to-Applicants Ratio
Production (seasonally adjusted) in Japan

Source: Japan Macro Advisors Source: Japan Macro Advisors


China’s economy encountered

China’s Investment and Industrial
uncertainties Growth (%, yoy,ytd)
China's economy in Q4/2018 grew at 6.4%
(yoy), reflecting a slight decrease compared
to the previous quarters. This pulled the
growth rate down to 6.8% in 2018, which
was the lowest level in the last 28 years.
Along with that, the pressure of trade
tension with the US has restrained the
growth to under 6.3% in 2019 in projection.
In Q1/2019, total social investment

increased to 6.1% (from 5.9% in Q4/2018)
while private investment fell to 7.5% (from Source: NBS
8.7% in Q4/2018). Industrial growth also reduction package by the Chinese

plummeted to 5.3% in February. This may government started its positive effects on
be a sign that the country's production is production. In Q4/2018, the NMI fluctuated
unstable. from 54.7 points in January to 54.8 points
PMI continued to drop below 50 in three in March.
consecutive months, even in February the On the foreign exchange market, the
index was only 49.2, implying the exchange rate of CNY/USD fluctuated in
production diminishing. However, in March, Q1/2018 but moving downwards to 6.71
the PMI rose back to 50.5 points. This CNY/USD. The rate fell down to the lowest
indicates that the growth-promoting level of 6.68 CNY/USD in the quarter on
policies, especially 29 billion USD tax
China’s Exchange Rate and FX Reserves China’s PMI & NMI

Source: FRED, PBoC Source: AASTOCKS
27th February. However, the depreciation of Keqiang, announced that it would reduce
CNY contributed to the trade surplus with the compulsory reserve ratio, taxes and
the US at the highest level in the past transfers. Accordingly, China slashed banks'
decade, around 323.32 billion USD in 2018. reserve requirement ratio (RRR) two times:
Thus, foreign exchange reserves increased one was from 14.5% to 14% in 15th January,
slightly from 3087.924 USD billion in and further reduction was to 13.5% since
January to 3090.18 USD billion in February. 25th January.
On 4th January, Prime Minister China, Li
BRICS economies decelerated
BRICS economies witnessed a decline in billion USD, equivalent to 53.1% of GDP. It

economic growth in Q4/2018. However, is likely that South Africa would have to
India still experienced the highest growth in borrow money from IMF if the budget
the group with 6.79% (yoy) in Q4/2018, revenue could not afford their
followed by China with 6.4% (yoy). expenditures. Public debt is projected to
However, the lowest growth happened in raise, especially in the context of low
South Africa with 0.17% (yoy), the economic growth, high unemployment
nethermost in the last 3 years. This is rates, declining export turnover and gloomy
because the country is in a recession cycle investment environment. There is no
since 2013 with no projection about its projection of when South Africa steps out of
ends. Being the most developed economy in the depression.
Africa, but South Africa's economy has been
severely downgraded for many years, even
Economic Growth in BRICS (%, yoy)
international credit institutions ranked the
country at the bottom of 21 emerging
economies in terms of financial indicators
including GDP growth, current account,
credit risk level and value of stock markets,
and bonds. SARB had to cut its basic
interest rate to 6.5% in order to curb
inflation due to rising oil prices and the
Rand’s depreciation of 13% against to the
USD in 2018. Public debt in 2018 was 300

Source: OECD


Economic Growth in ASEAN-4 (%, yoy)
ASEAN economy saw the growth impetus
In the context of increasing trade tension

between US and China, the growth of
ASEAN-5 groups, including Indonesia,
Malaysia, Philippines, Thailand and
Vietnam, experienced optimistic signs again
in the Q4/2018.
Indonesia have been affected by the

currency crisis ending in 2018 and grew in
Q4/2018 at 5.14%, down 1.18% compared
to the Q3/2018. Presidential election Source: CEIC
campaigns launched in the second half of
2018 in Indonesia have impacted raising its interest rates four times to curb
considerably on the country's economy. inflation. The value of Peso and the stock
Along with that, instead of cutting domestic market both went up and the current
fuel subsidies to reduce government account was back in control. Low foreign
expenditures and restrict imports, the debt and abundant remittances have helped
government forced state-owned petroleum the Philippines to better cope with the
company named Pertamina to provide fuel adverse effects of the trade war and the rise
below market prices. In an inconsistent, of oil prices - the growth-declining factors.
ineffective, non-transparent and completely Thailand's economy grew again in Q4/2018
unfavorable legal environment, investors at 3.7% (yoy), higher than the expected
have reduced investment, resulting in value of 3.6%. According to the National
slower output growth, no new orders and Economic and Social Development Board
the decreasing number of Indonesia's (NESDB), rising consumption and
merchandise export revenue in 2018. investment boosted economic growth
Q4/2018, and offset the decline in exports
Philippines remained economic growth at
due to US-China trade war and sharply
6.1% growth (yoy) in Q4/2018. The
increasing value of Bath.
Philippine Central Bank was successful in

Global Economic Prospect (%)

WEO (4/2019) GEP (1/2019)

2018e 2019p 2020p 2018e 2019p 2020p
World 3.6 3.3 (-0.2) 3.6 (-0.1) 3.0 (-0.1) 2.9 (-0.1) 2.8 (-0.1)
Advanced economies 2.2 1.8 (-0.1) 1.7 (0.0) 2.2 (0.0) 2.0 (0.0) 1.6 (-0.1)
US 2.9 2.3 (-0.2) 1.9 (0.1) 2.9 (0.2) 2.5 (0.0) 1.7 (-0.3)
Euro area 1.8 1.3 (-0.3) 1.5(-0.2) 1.9 (-0.2) 1.6 (-0.1) 1.5 (0.0)
UK 1.4 1.2 (-0.3) 1.4 (-0.2) 1.3 (-0.1) 1.4 (-0.1) 1.7 (0.0)
Japan 0.8 1.0 (-0.1) 0.5 (0.0) 0.8 (-0.2) 0.9 (0.1) 0.7 (0.2)
Emerging and developing
4.5 4.4 (-0.1) 4.8 (-0.1) 4.2 (-0.3) 4.2 (-0.5) 4.5 (-0.2)
economies
Russia 2.3 1.6 (0.0) 1.7 (0.0) 1.6 (0.1) 1.5 (-0.3) 1.8 (0.0)
China 6.6 6.3 (0.1) 6.1 (-0.1) 6.5 (0.0) 6.2 (-0.1) 6.2 (0.0)
India 7.1 7.3 (-0.2) 7.5 (-0.2) 7.3 (0.0) 7.5 (0.0) 7.5 (0.0)
Brazil 1.1 2.1(-0.4) 2.5 (0.3) 1.2 (-1.2) 2.2 (-0.3) 2.4 (0.0)
South Africa 0.8 1.2 (-0.2) 1.5 (-0.2) 0.9 (-0.5) 1.3 (-0.5) 1.7 (-0.2)
ASEAN-5 5.2 5.1 (0.0) 5.2 (0.0)
Indonesia 5.2 5.2 5.2 5.2 5.2 5.3
Malaysia 4.7 4.7 4.8 4.7 4.7 4.6
Philippines 6.2 6.5 6.6 6.4 6.5 6.6
Thailand 4.1 3.5 3.5 4.1 3.8 3.9
Viet Nam 7.1 6.5 6.5 6.8 6.6 6.5
Laos 6.5 6.7 6.8 6.5 6.6 6.7
Cambodia 7.3 6.8 6.7 7.1 6.8 6.8
Myanmar 2.1 6.4 6.6 6.2 6.5 6.6
Note: ( ) show differences from latest forecast; e stands for estimates; p stands for prediction

Source: World Economic Outlook (IMF), Global Economic Prospects (WB)


THE VIETNAMESE ECONOMY
Growth and Inflation
Vietnamese’s economy maintained its growth but slowdown
Viet Nam’s Economic Growth (%, yoy)

Source: Calculation from GSO data
According to the GSO, Vietnam's economic Japan (8.3%), Taiwan (26%) and Thailand
growth was at 6.79% (yoy) in Q1/2019, (49.3%) on year-on-year basis.
proving that the growth momentum has In the first quarter, the agriculture, forestry
decreased slightly in the beginning of 2019. and fishery sector grew quite gloomy and
The service sector grew at 6.5% (yoy) in only reached 2.68% (yoy).
Q1/2019, which is lower than that in
Q1/2018 at 6.7%. Wholesale and retail
Economic Growth by Sector in Q1,
segments increased to 7.82% (yoy), 2017-2019 (%, yoy)
contributing mostly to the overall growth.
Accommodation and catering services was
up to 7.60% (yoy). Finance, banking and
insurance activities grew to 6.22% (yoy)
and real estate business increased to 4.75%
(yoy). The number of international visitors
to Vietnam also increased significantly with
over 4.5 millions of visitors, around 7%
(yoy). In particular, the leading markets
experienced positive growth in tourist
arrivals, including: Korea (24.1%),
Source: GSO
The rice prices went down due to the high

Selected Industrial Indicators (%, ytd)
market supply while livestock industry was
affected by cholera outbreaks in most
provinces. However, the fishery underwent
highest increase in the past 9 years,
reaching 5.1% (yoy) at Q1/2019. Thanks to
the weather, stable costs and high market
demand, production in fishery was
increased significantly.
Meanwhile, the industry and construction

sector grew at 8.63% (yoy), although it was

lower than 10.08% of Q1/2018 but still
contributed mostly to economic growth. Source: GSO
Processing and manufacturing industry was index in processing and manufacturing

the main growth driver in this sector with a industry grew at 8% (yoy), but which are
high increase of 12.35%, which lower than still lower than these in Q1/2018.
Q1/2018 at 13.56%. At the same time, the Moreover, since the beginning of 2019, the
mining industry grew at -2.2% (yoy). indexes related to production and
Indicators of industrial production imply consumption declined considerably, while
the slowdown in economic growth. inventory index rose sharply. This is likely
Although industrial production index (IPI) to lead to temporarily suspend production.
increased to 9.2% (yoy), the consumption

The number of temporarily ceased firms

soared
The purchasing managers' index (PMI) activities in Q1/2019 were better than
in Q1/2019 saw a decline compared to that Q4/2018 and 40.5% said that the business
in December although economic growth conditions were stable. 54.6% of businesses
stayed at a high level. The index decreased predicted that business activities in
from 53.8 points to 51.9, 51.2 and 51.9 Q2/2019 would be better than Q1/2019,
points in the first three months of the year, while only 10.6% was in the opposite side.
reflecting the slow pace of expansion in the According to GSO, in the first three months
manufacturing sector. of the year, there were 28,451 enterprises
33.7% of enterprises surveyed by GSO newly registered with a total registered
believed that the production and business capital of 375.5 trillion VND, down 6.2% in


number of enterprises and 34.8% in

Labor Growth in Industry Sector in Q1
Inflation (%, yoy)
registered capital compared to Q1/2018. (%)
However, the number of ceased firms
caused many concerns. Q1/2019 witnessed
14,761 businesses temporarily suspended
business for a definite time, 20.8% higher
than the previous year. 58.4% of the 15,331
enterprises were waiting for completion of
dissolution procedures under the 2018
review program.
The volume of new jobs increased by 40.9%

(317.6 thousand people) compared

Q1/2018. Particularly, workers working in Source: GSO
industrial firms and state-owned Source: GSO
enterprises increased by 2.3% (yoy) and
0.5% respectively. Labours in non-state three, while the state-owned enterprises
enterprises and FDI grew by 1.5% and 3.1% continued to narrow its employment, which
respectively. This shows that FDI is still an is in line with the tendency of economic
employment promoting sector among restructuring but more slowly.
Inflation slightly increased in Q1/2019
Business Operations Viet Nam’s PMI

(th. units, th. persons)
Source: GSO Source: Nikkei
Inflation is moving upwards in Q1/2019. February 2019, transportation prices went

Compared Q1/2018, total inflation up by 2.22% because of the increase in
increased slightly in three recent month, at gasoline and oil prices on 2nd March 2019;
2.56%, 2.64% and 2.7% (yoy) respectively. housing and construction materials prices
Core inflation in Q1/2019 was controlled at rose by 0.78% due to a 4.88% increase in
1.83% (yoy), reflecting the stability of gas prices in the same month; medicine and
monetary policies. medical service price increased by 0.03%;
Average CPI increased to 2.63% (yoy) in education prices was up by 0.01%. All in all,
Q1/2019, which is the lowest level within compared to Q1/2018, CPI was stable at
the last 3 years. In February 2019, CPI went 2.6% - 2.7% (yoy), which is contributed by
up to 0.8% (mom) due to high market the downward adjustment of gasoline
demand before Lunar New Year. prices.
Particularly, the price increases triggered in However, the economy in Q2/2019 is

catering services to 1.73% and food to expected to face to many risks due to an
2.13% compared to January 2019. In March increase of 8.36% in electricity price 20th
due to cholera outbreaks and lowering March, which can rise CPI by about 3.3%
market demand after Tet holiday, CPI (yoy).
dropped by 0.21% (mom). Compared to

Macroeconomic balances
Trade surplus confronted instability

Trade balance in January saw an export 70.9% of total turnover), up 2.7% (yoy).
surplus of 816 million USD. In February, Exports from the domestic sectors went up
trade deficit was 768 million USD, while in by 9.7% (yoy), in which the main export
March the estimated trade surplus was 600 products include phone’s components with
million USD. In Q1/2019, trade surplus was the value of 12.1 billion USD, down 4.3%
536 million USD, but of which the domestic (yoy); textile and garment products with
sector underwent a trade deficit of 7.04 7.3 billion USD, up 13.3% (yoy); electronic
billion USD while FDI sector (including devices, computers and components with
crude oil) experienced trade surplus of 7.57 the value of 6.9 billion USD, up 9.3% (yoy);
billion USD. footwear with exports of 4 billion USD,
Export turnover in Q1/2019 was 57.51 up by 15.3% (yoy); machinery, equipment
billion USD, up by 4.1% (yoy). In particular, and spare parts exporting 3.9 billion USD,
exports were mainly from FDI enterprises up 5.2% (yoy), wood and wood products
which accounted for a major proportion of gaining 2.3 billion USD exports, up 17%
41.46 billion USD (equivalent to around (yoy). Export turnover of vegetables and


fruits of Vietnam fell to approximately 885 authorities from both Vietnam and China.
million USD, down 8.6% (yoy). The Producers and packaging firms must be
turnover of other items also decreased assessed by the Chinese Department of
compared to the same period last year. Custom
Particularly, coffee exports was 830 million Import turnover is estimated to reach 57.98
USD, down 23.8%; cashew nuts are billion USD in the first three months, with
exported around 625 million USD, an increase of 8.9% compared to the
decreased by 17.2%; pepper exports was previous year. Specifically, imports of FDI
189 million USD, down by 14.7%; rice was sector accounted for 33.89 billion USD and
exported around 567 million USD, down by the domestic sector was 24.09 billion USD.
23.6%. The main reason is the oversupply It can be seen that the FDI sector continues
of these items in the international market. to be the commercial leader of Vietnam's
The Vietnam’s top three export included US, economy. Electronic products, computers
EU and China with the value of 13 billion and components and the group of
USD, 10.2 billion USD and 7.6 billion USD machinery and equipment, spare parts
respectively, followed by ASEAN, Japan and continue to be the most preferred imported
Korea. Export turnover to Chinese market groups in the last months with turnovers of
decreased by 7.4% (yoy) because the 11.7 billion USD and 8.7 billion USD. Crude
exports to the market became more oil is imported up to 919 million USD due to
difficult. Particularly, in recent, to exports the demand for production of Nghi Son
vegetables and fruits into Chinese market, Refinery and Petrochemical Co., Ltd. which
there is a need for a plant quarantine has just come into production since mid-
certificate which are certified by competent 2018.
Trade Balance and Growth Trade Balance by Sector

Source: GSO Source: GSO
China was still the biggest import market of

Exports by Sector
Vietnam with 15 billion, up by 9.7% (yoy).
Next is the Korean market with 11.8 billion
USD, ASEAN market of 8.2 billion USD,
Japan with 4.7 billion USD and EU market of
3.6 billion USD. The reason is that the two
US-China countries are in a state of truce
and trying to negotiate, the Chinese
currency is also on a downward trend.

Source: GSO
Budget balance in the first quarter
reached surplus
The data of the State budget estimating same time, the Ministry of Finance also
over the years clearly shows the shift in the predicted that the overspending could
structure of budget revenue in a volatile reach 222 trillion VND, equivalent to 3.6%
world. Estimated crude oil revenue is of GDP. The total state budget revenue in
adjusted down gradually over the years Q1/2019 was 381 trillion VND, equal to
2016-2019, from 54.5 billion to 44.6 billion 27% of the estimate in the whole of 2019,
USD in 2019. up by 13.2% compared to the same period
in 2018. In which, domestic revenue still
In the context of recent oil price recovery,
the Government estimated that revenue contributed the most with 315, 4 trillion
from crude oil would increase to 24.2% VND, up by 13.8% (yoy); revenue from
compared to 2018, about 189.2 billion VND import and export activities reached 80.8
in 2019. trillion VND, up by 17.6% (yoy). Budget
expenditure was only 315.6 trillion VND,
Regarding State budget spending, the increased by 7.6% compared Q1/2018.
Ministry of Finance estimated that in 2019 Along with that, 28th February 2019, the
they would spend 1,633,300 billion VND, Ministry of Finance issued 62.194 billion
7.2% higher than 2018, of which recurrent VND of Government bonds.
expenditures account for 63.8%. At the


FDI of China increased sharply
Retail and service business activities fastest with 13.8% (yoy), followed by FDI
in the first three months satisfied the high sector with 7.52% (yoy). The state sector
demand during the Lunar New Year, was at the lowest position, estimated at
estimated at 1,184.9 trillion VND, up by 2.1%. Compared to Q4/2018, investment
12% (yoy). If excluding price factor, it capital growth in agriculture, industrial
increased by 9% (higher than 8.6% of the and service sector were slow at 18,2%,
same period last year). In which, goods 9,1% and 4,7% respectively, lower than
retail revenue in the first 3 months were the figures of the same period last year.
estimated at 910.4 trillion VND, accounting Regarding to foreign investment, the newly
for 76.8% of total revenue and up by 13.4% registered capital reached 3.82 billion USD,
(yoy). up by 80.1% (yoy). Additional capital
Total social investment in the first quarter increased by 1.3 billion USD, up by 72.5%
witnessed a slight decline in growth compared to the same period last year.
compared to the previous quarter. Thus, disbursement of foreign direct
The total realized investment capital was investment in Q1/2019 reached 4.12
estimated at 359.2 trillion VND, billion USD, 6.2%, higher than Q1/2018 of
up by 8.4% compared to figures in 3.88 billion USD.
Q1/2018. The non-state sector grew the
Retail Growth (%, ytd, yoy)

Foreign Direct Investment (bil. USD)

Source: GSO Source: MPI

Total Social Investment (yoy), 2014-2018

Source: Calculation from the GSO data
In the first quarter, there were 785 in fabrics and dyeing knitted fabrics
new projects, in which manufacturing and production in Nghe An.

processing industry remained the biggest In terms of partners, in Q1/2019, China
FDI attraction. Its capital accounted for became the biggest investor with a total
75.3% of the total newly registered capital, capital of 723.2 million USD, followed by
which let this area be the main driver of Singapore with 690.8 million USD, South
growth economy. Korea with 547.3 million USD, Japan with
Some big projects in Q1/2019 included the 471.5 million USD, Hong Kong with 456.4
capital contribution purchase of Beerco million USD, British Virgin Islands with
Limited (Hong Kong) and Vietnam 207.3 million USD and Radio Loan with
Beverage Co., Ltd. with a value of 3.85 197.5 million USD. The rise of FDI from
billion USD; the project of Goertek China has been in line with our
(Hongkong) Co., Limited in Bac Ninh to expectations in previous reports on capital
manufacture electronics equipment, inflows towards Vietnam in order to avoid
network equipment and multimedia audio US-China trade war and anticipate CPTPP
products with a total registered capital of agreement.
260 million USD; Vinhex project with a total

registered capital of 200 million USD from
Royal Pagoda Private Limited (Singapore)

The monetary and financial markets
The exchange rate was stable,

foreign exchange reserves increased

The nominal exchange rate is quite stable in adjusted to a low level of VND 22,858
Q1/2019. After the declaration of US - China VND/USD. After the interruptions in 2018,
trade war ceasefire and the Fed decided not since 2019 the State Bank of Vietnam has
to raise interest rates, the selling rate of been in net foreign exchange,
USD was almost stable. The central which mitigated the high demand for VND
exchange rate continued to increase slightly due to Tet period and increased the
from the beginning of Q4/2018 until the national foreign exchange reserve fund. The
end of Q1/2019. Specifically, the exchange reasons is that the exchange rate of the
rate on 31st March 2019 reached 22,976 foreign currency in the quarter was stable.
VND/USD, increased nearly 1% compared In addition, the supply of foreign currency
to the same period in 2018. This fact shows since the beginning of 2019 remained quite
that although the SBV has not officially unchanged, the liquidity in the market was
stated, it has devalued VND in accordance high
with the level of integration, like VEPR has In January, the SBV bought more than 4
recommended before in order to avoid billion USD of foreign exchange due to the
risks of CNY’s depreciation against USD. high supply of foreign currency and in the
However, the increase was lower than level last two months, the foreign exchange
of 1.8% in Q4/2018, because the reserve increased by 2 billion USD, raising
cancelation of normalizing monetary policy the record of foreign exchange reserves to
in developed countries mitigated the SBV’s 65 billion USD at the end of Q1. Compared
burden of adjusting interest rates and to figures in 2018 with net buying of only 6
exchange rates. billion USD, this is a good signal to increase
The VND/USD exchange rate of commercial the SBV’s ability to maintain the micro
banks in Q1/2019 was close to the ceiling of economy.
3% (compared to the central exchange rate)

set by the SBV, although there were some Nominal Exchange Rate (VND/USD)
slight fluctuations before Tet. Accordingly,
the exchange rate at commercial banks on
31st March 2019 was at 23,250 VND/USD,
a slight increase compared to Q4/2018 at
23,245 VND/USD and 1.8% higher than
Q1/2018. Before Tet, high demand for VND
pushed the VND/USD exchange rate down
to 23,196 VND/USD (on 28th January 2019),
and the central exchange rate was also

Source: SBV, VCB
Interbank rates increased under the

pressure of policy changes
In general, compared to Q1/2018, cause laid in the enterprise information

interbank interest rates in the first quarter system which has not been presented
of 2019 was high and the amplitude of according to IFRS standards to convince
fluctuation is narrower in the range of investors, low corporate governance index,
3.38% (mid-January) to 5.6% (at the end of high cost of credit rating
February - before the Lunar New Year). In 2019, the SBV set a credit growth target
Similar to Q1/2018, the interbank interest of 14%. In particular, credit will still be
rate reached the highest level near Tet flowed into priority areas in order to
holiday due to high demand for short-term ensure risk control and rapid economic
loans. After the peak season, the interest growth. By the end of Q1/2019, credit
rate was remained only 3.32% in the end of growth laid at a higher level which is more
the quarter. The increase in interest rates than 2.28% until 25th March 2019, but it
compared to last year is due to ensuring was still lower than the same period of last
compulsory reserve ratios and changes in year at 2.78%. Credit flowing into industrial
deposits from large banks. sector experienced the fastest growth rate
According to the Deputy Governor of the of 2.57%, that in trade and services reached
State Bank, the ratio of corporate bonds is 1.97% (compared to the beginning of the
currently only 8.5% of GDP, a very low level year). For priority sectors including export,
compared to the average of regional supporting technology and high-tech
countries of 22%, while the ratio of credit application enterprises, credit growth was
to GDP is currently at 130%. The main high, at 5.4%, 3.44% and 2.79%
Interbank Offered Rate (%) Growth of M2, Deposit, and Credit in Q1

2017-2019

Source: SBV Source: GSO

respectively. Despite the credit growth in increased by only 1.72% (lower than 2.43%
agriculture and rural areas, the proportion in 2017 and 2.2% in 2018).
of outstanding loans was large and At the same time, the SBV has proposed a
increased by 2% compared to Q4 / 2018. series of measures to resolve the black
Trade and services sectors underwent the credit situation such as increasing the
highest credit outstanding at 61.21%. maximum loan limit and time limit for poor
households to meet capital demand for
In Q1/2019, the growth of total means of production and business. At the same time,
payment has decreased by only 2.54% Agribank also launched a 5,000 billion VND
(compared to 3.23% in 2018). Capital credit package to support households’
mobilization of credit institutions also lending.

Asset markets
Gold Price (mil. VND/tael)
Domestic gold price was stable despite
the uptrend in the world market.
In the context of the increasing world gold

price increased from 35.89 million
VND/tael to 36.68 million VND/tael at the
end of the quarter, domestic gold price
remained relatively stable and its
fluctuation range is narrower in a range of
36.4 - 36.9 million VND/tael, compared to
that in the world market and ends the
quarter at 36.4 million VND/tael.
Source:
A world price increasing sharply has even
interconnection. However, the continuous
surpassed domestic prices, for example 20th increase of world gold price from the
February, the world gold price was higher beginning of the year will put considerable
than domestic price of 638,000 VND/tael. It
pressure on stabilizing the domestic gold
can be said that the domestic and
price.
international gold market still lacks

Apartment market has been faced a
decline in the supply.
There is a large demand in the apartment begin of Q1 but up by 8%(yoy). Similarly,

market. The supply of apartments the number of apartments launched to the
decreased across all segments in the two Ho Chi Minh City’s market reached 4500
big cities, Hanoi and Ho Chi Minh City. units, down 51.5% during the quarter and
Specifically, in Hanoi, Grade A apartments down 57% compared to Q1/2018 because
decreased by 84% and Grade B and C went of prolonged legal approval process. Grade
down by 35% in comparison with the C apartment market for low-income people
beginning of Q1. However, compared to accounting for more than 85% of the
Q1/2018, the number of apartments market share is concentrated in suburban
launched into the market still increased by areas and also facing with supply reduction
76%. The mid-range apartment segment although the demand is always rising.
was the most popular one, accounting for
more than 70% of the number of
transactions (according to Savills). In Hanoi,
the price of Grade B apartments was about
1,390 USD/m2, down 2% compared to the


It is forecasted that the supply in the next market bloomed in the last 5 years while
quarters will be improved quickly because the land fund has been limited. To
more than 34 projects will be entered into overcome this barrier, businesses need to
the market such as VinCity Ocean Park, BRG build a clean land fund along with ongoing
Smart City in Hanoi and the legal approval projects while individual investors should
process is also accelerated. stop utilizing leveraging financial.
However, because banks continuously Besides, the real estate market is still a FDI
tightened its loans with higher interest attracting sector. According to the Foreign
rates than 2018, the real estate market will Investment Agency, this sector was
also face many difficulties from both supply invested 500 million USD in Q1/2019 and
and demand sides. However, it is necessary accounted for 5% of total FDI, following the
to propose solutions when the real estate processing and manufacturing industry.
Hanoi’s Apartment for Sale HCMC’s Apartment for Sale

Source: CBRE Source: CBRE

PROSPECT FOR POLICY NOTES AND THE

ECONOMY IN 2019
The world underwent considerable changes Growth-Inflation forecast 2019

in the first quarter of 2019. Although
economic growth maintained at a decent With the growth rate of 6.79% in Q1,
level, the US and Chinese economies VEPR believed that the growth target of
became more vulnerable due to both 6.6 - 6.8% in 2019 set by the National
internal issues and stressful trade problems Assembly is possible. However, due to
between the two countries. Meanwhile, the the US- China trade war, protectionism,
European economy confronted a variety the risks of China's economy, the
uncertainties in the pressure of Brexit uncertain scenario after Brexit and
negotiations as well as other breaks within conflicts within the EU region, the erratic
the region. The highest growth still behavior of Donald Trump , etc the future
triggered to the ASEAN group. However, the of Vietnam's economy in 2019 is in the
cracks of the economic relations in the edge of uncertainties in front of world
world has also threatened to these groups market shocks.
of countries, including Vietnam, especially The average inflation rate in the first
in trade and globalization. quarter was at a moderate level of
2.63%, but is on an increasing trend. The
Vietnam's economic growth in Q1 was at
impact of the recent increase in
6.79% (yoy), which is lower than that in
electricity and petrol prices to CPI may
Q1/2018 of 7.45%. The growth rate in
last 2 to 6 months. Therefore, in order to
some industries slowed down. It can be
achieve inflation target below 4%, SBV
seen that the sharp drop of the PMI index to needs to be cautious with its monetary
the lowest level in the last three years in policies.
February 2019 due to the decline in
In that context, we forecasted growth
employment and inventories caused the
and inflation in 2019 as follows:
optimism of producers to decrease
Growth- Inflation in 2019 (%, yoy)
Economic growth heavily depends on FDI
sectors and its exports while equitization of Economic
Inflation
the SOE sector has continued to stall. In the Growth
first quarter, there were 43.5 thousand Q1 6,79 2,63
enterprises registered to be newly
Q2 6,32 2,78
established or returned to operation, but
there were also 14.8 thousand enterprises Q3 6,94 3,26
temporarily suspended (up by 20.8%, yoy);
Q4 7,16 4,20
15.3 thousand enterprises waited for
dissolution and 4.1 thousand enterprises 2019 6,8
completed dissolution procedures (up by
Source: VEPR
23.9%, yoy). This shows that Vietnamese


enterprises are still weak and the business year is utilizing the shift of FDI inflows to
environment needs to be improved Vietnam to catch up opportunities from
Inflation, although is at moderate level in CPTPP, EVFTA and hedging risks from US -
Q1/2019, is expected to increase due to China trade tensions. In Q1/2019, China
recent adjustments in electricity and became the largest foreign investor in
gasoline prices. The impact of these shocks Vietnam. Capital flows from China, however
on domestic prices may continue in next offers positives for employment and
months, so it requires prudent management growth, can also entail risks towards
from the SBV for money supply and credit environment pollution and foreign worker
growth in the coming time. management. Thus, it is time to review
preferential policies on taxation or land for
The pressure from the normalization of FDI in order to create a more equal
monetary policies in advanced economies playground between domestic and foreign
has decreased. This will mitigate the SBV’s sectors
burden on the exchange rate and interest
rate management. We believe that two The equitization of the state-owned sector
indicators do not experience large changes has almost no progress over the past year.
in 2019 and may be within the set targets. Difficulties in asset valuation and fear of
taking responsibility seem to be the main
Monetary policy needs to adapt promptly to barriers to this process.
economic changes. The top priority is to
manage the exchange rate flexibly in order Finally, as recommended in previous
to absorb external shocks. Interest rates reports, in long term, Vietnam needs to
should be kept at a stable level to enable gradually build fiscal buffer, through
businesses to access capital markets, reducing the government bureaucracy and
especially for industries that are on the rise current spending. Once the problem of high
and potential to participate in global value budget deficit and rapidly increasing public
chains. In addition, lowering leverage and debt are not solved, growth achievement
strengthening the banking system should and inflation control rely on a weak
also be concerned. The striking note in this foundation.

Note: Long-term and structural policies
will be discussed in other policy reports of
VEPR.

Abbreviations
BoJ Bank of Japan

BoE Bank of England
BSC BIDV Securities Company
CBRE CB Richard Ellis Viet Nam
CNY Chinese Yuan
ECB European Central Bank
FDI Foreign Direct Investment
FED Federal Reserve
FIE Foreign invested enterprises
FMCG Fast Moving Consumption Goods
GDP Gross Domestic Product
GSO General Statistics Office
HSCB Hong Kong Shanghai Commercial Bank
LHS left hand side
IMF International Monetary Fund
MOF Ministry of Finance
MOIT Ministry of Industry and Trade
mom month-on-month
MPI Ministry of Planning and Investment
OECD Organization for Economic Co-operation and Development
PMI Purchasing Manager Index
qoq quarter-on-quarter
RHS right hand side
SBV State Bank of Viet Nam
UN United Nations
USD the United State dollar
VAMC Viet Nam Asset Management Company
VCB Viet Nam Bank of Foreign Trade
VND Viet Nam Dong
WB World Bank
yoy year-on-year
ytd year-to-date

Disclosure appendix
Author’s Certification
The following author who are primarily responsible for this report, certify that the opinion on
the subject or issues and/or any other views or forecasts expressed herein accurately reflect
their personal views and that no part of their compensation was, is or will be directly or
indirectly related to the specific recommendations or views contained in this research report:
Nguyễn Đức Thành, Phạm Thế Anh, Bùi Hà Linh, Hà Thị Dịu (VEPR Macroeconomic Research
Team).
This document has been prepared and is being distributed by Viet Nam Institute for Economic
and Policy Research (VEPR) and is intended solely for the customers of VEPR and is not for
publication to other persons, whether through the press or other means. Advice in this
document is general and should not be construed as personal advice.
Additional disclosures
This report is dated as April 11, 2019. All data included in this report are dated March 30, 2019
unless otherwise indicated in the report.
VEPR has procedures in place to identify and manage any potential conflicts of interest that
arise in connection with the authors. Any confidential and/or sensitive information is handled
in an appropriate manner. All contributions and exchange please send to: Viet Nam Institute
for Economic and Policy Research, Room 707, E4 Building, 144 Xuan Thuy Street, Cau Giay
district, Ha Noi. Email: info@vepr.org.vn

 MORE WORKING PAPERS
VMM18Q4 Viet Nam Quarterly Macroeconomic Report, Quarter 4 - 2018
PD-07: Evaluation of the Law on Public Debt Management of Vietnam and some
Policy Implications
PD-06: Minimum Wages in Viet Nam: Preliminary Observations
PD-05: A brief on impacts of Brexit on the World Economy and Vietnamese Economy
WP-18: Development characteristics of SME sector in Vietnam: Evidence from the

Vietnam Enterprise Census 2006-2015
WP-17: The 19th National Congress of the Communist Party of China: Preparation
for a New Era

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VIET NAM QUARTERLY

Konrad Adenauer Stiftung

§ The global economy is expected to undergo instability in 2019. Many international

2019 VIET NAM MACROECONOMIC REPORT Q1 1

THE WORLD ECONOMY

Commodity market in Q1/2019 witnessed

Gold Price and USD Index

Source: FRED, www.gold.org

2 2019 VIET NAM MACROECONOMIC REPORT Q1

As for other energy commodities, meeting on 20th March, US Federal Reserve

stayed at 406 USD/ton in March. September. Fed forecasted US economic

harvesting season. the economic depression.

recently experienced a cool down in at 1295.4 USD/oz. Gold price depended

highest level of 127.93 on 7th March. At the present.

US Economy confronted a variety of

The third estimate by the US Bureau of US Economic Growth (%)

2019 VIET NAM MACROECONOMIC REPORT Q1 3

doubts of weakening US strength. Fed vacancies in December. By February, these

expected. Additionally, core and total (equivalent to 12.5%) compared to 2017.

months of 2019. Particularly, NMI in trade deficit decreased by 15% in

points respectively, higher than those

Inflation and unemployment rate (%, US non-manufacturing Index

4 2019 VIET NAM MACROECONOMIC REPORT Q1

In Q1/2019, President Donald Trump

EU Economy faced difficulties

The European economy continuously

growth in this region to decrease. February. Core inflation increased slightly

deposit. These figures were controlled at significantly compared to Q4/2018. At the

increase of inflation until it reaches to the EUR/GBP, growing by 4.5% compared to

The employment rate was improved in

2019 VIET NAM MACROECONOMIC REPORT Q1 5

UK is facing many uncertainties.

Growth of industrial production and retail

6 2019 VIET NAM MACROECONOMIC REPORT Q1

on 25th December 2018, Japanese Meanwhile, inflation is moving downwards

China’s economy encountered

In Q1/2019, total social investment

8.7% in Q4/2018). Industrial growth also reduction package by the Chinese

China’s Exchange Rate and FX Reserves China’s PMI & NMI

8 2019 VIET NAM MACROECONOMIC REPORT Q1

BRICS economies decelerated

BRICS economies witnessed a decline in billion USD, equivalent to 53.1% of GDP. It

In the context of increasing trade tension

Indonesia have been affected by the

10 2019 VIET NAM MACROECONOMIC REPORT Q1

Global Economic Prospect (%)

Source: World Economic Outlook (IMF), Global Economic Prospects (WB)

THE VIETNAMESE ECONOMY

Growth and Inflation

Vietnamese’s economy maintained its growth but slowdown

Viet Nam’s Economic Growth (%, yoy)

12 2019 VIET NAM MACROECONOMIC REPORT Q1

The rice prices went down due to the high

Meanwhile, the industry and construction

Processing and manufacturing industry was index in processing and manufacturing

The number of temporarily ceased firms

number of enterprises and 34.8% in

The volume of new jobs increased by 40.9%

Inflation slightly increased in Q1/2019

Business Operations Viet Nam’s PMI

Source: GSO Source: Nikkei

14 2019 VIET NAM MACROECONOMIC REPORT Q1

Inflation is moving upwards in Q1/2019. February 2019, transportation prices went